HMRC Penalties for Failure to Notify of Tax Avoidance Schemes
All taxpayers, whether individual or corporate, are required to notify HMRC of their liability to pay tax of whatever nature, such as income tax, capital gains tax or corporation tax, as well any changes in their circumstances, for example, when relevant thresholds have been reached such as those regulating VAT liability.
Failure to notify HMRC of these changes by the prescribed dates may result in the imposition of substantial financial penalties.
In a number of recent articles, we have focused on the flow of problems created by the operation of umbrella companies. This issue was further highlighted in the recent First-tier tax tribunal decision in the case of HMRC v Industria Umbrella (in liquidation) [2025] UKFTT 494, which concerned the disclosure to HMRC of a tax avoidance scheme as required by Part 7 of the Finance Act 2004.
Tim Thompson of KANGS outlines the requirements to disclose notifiable arrangements and a notifiable proposal to HMRC and this reported case.
The Relevant Law
The Finance Act 2004 states that:
Notifiable arrangements include those which:
- fall within any description prescribed by the Treasury by regulations,
- enable, or might be expected to enable, any person to obtain an advantage in relation to any tax that is prescribed in relation to arrangements of that description and
- are such that the main benefit, or one of the main benefits, that might be expected to arise from the arrangements is the obtaining of that advantage.
Notifiable proposal means a proposal for arrangements which, if entered into, would be notifiable arrangements (whether the proposal relates to a particular person or to any person who may seek to take advantage of it).
The Case in Focus | HMRC v Industria Umbrella (in liquidation) [2025] UKFTT 494
The Background
The scheme which was operated by Industria Umbrella (‘Industria’) between 2017/18 and 2019/20 followed the well-recognised umbrella company arrangements, providing to professional contractors the opportunity to convert the level of salaries paid over and above the national minimum wage levels into ‘loan arrangements.’
Such arrangements deliberately evaded the obligation to account for income tax and NIC. In turn, this enabled participants to retain a higher proportion of their income.
The alleged vague intent was that the ‘loans’ would eventually be repaid from ‘future bonuses’ with no time scales or penalties for failure to make payment imposed.
No disclosure of the ‘notifiable arrangements’ had been made and HMRC informed Industria that it intended to apply to the Tribunal for penalties to be imposed.
In the event, Industria went into creditors’ voluntary liquidation and the liquidators did not oppose the action commenced by HMRC.
The Court Ruling
As the liquidators did not oppose the proceedings, the matter was decided by Judge Natsai Manyarara without a Hearing.
HMRC had submitted that Industria's arrangements were notifiable arrangements and the Judge agreed. He also recognised that the arrangements had resulted in a tax advantage because of the artificially reduced liability to income tax and NIC incurred by the scheme users.
The Judge noted that even if the loans had been repaid, the deferral of the tax liability would still have amounted to a tax advantage.
The Judge agreed with HMRC ‘s contention that the maximum penalty of £1 million should be imposed stating:
‘there was no other reason for an individual to enter into arrangements that would likely pay them a considerably smaller salary that their previous employment, replace a significant part of their income with a substantial repayable loan and unspecified discretionary bonus and require them to relinquish up to approximately fifteen per cent of their gross contact value to their employer.’
The case of Industria illustrates both HMRC’s position and that of the court when seeking to penalise taxpayers and companies for engaging in tax avoidance schemes.
How Can We Assist?
HMRC is increasingly aggressive in its pursuit of both users and promotors of any scheme seeking to evade payment of any form of tax liability as and when it falls due.
HMRC has announced its ‘direction of travel’ for new legislation affecting umbrella company arrangements, which is due to take effect in April 2026. This includes the introduction of ‘joint and several liability’, intended to ensure accountability across the supply chain.
The team at KANGS has vast experience and is well versed in the legislation and law surrounding tax avoidance schemes of every nature, and we closely monitor the constantly changing world of tax legislation.
Should you encounter any such problems relating to tax avoidance as discussed above, our dedicated team would be delighted to assist you. Contact us today using the details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through video conferencing or telephone.
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